Will falling homebuyer demand mean falling house prices?
RICS released their latest UK Residential Market Survey today
What RICS said
New buyer enquiries indicator moves further into negative territory
Sales soften slightly, whilst new instructions remain flat
House prices continue to rise, but growth slowing
RICS noted last month that new buyer enquiries had started to soften and softened further in June. The questions on everybody's lips are therefore:
Is this the first sign that the cost of living crisis is starting to be felt by homebuyers?
Will falling homebuyer demand lead to falling house prices?
Falling homebuyer demand
We show the historical context of the fall in new buyer enquiries in the graph below, the red line indicates the current level not seen since the start of the pandemic, a certain Brexit Referendum and a common or garden Global Financial Crisis (GFC). Aside from the GFC we note that such dips in buyer enquiry levels have so far been short-lived and we will watch how this metric evolves in the coming months with interest.
However, June was an unusual month with a heatwave and a long Jubilee Bank Holiday weekend, so it might not be too wise to read too much into one month's figures. At a national level, the net balance for new buyer enquiries fell from -9% in May to -27% in June.
We must also remember that the reduction in new buyer enquiries comes following a period of significantly heightened housing market activity.
What does a reduction in homebuyer demand mean for house prices?
It is logical to have concerns about house prices as housing demand falls, but demand is only half of the picture. We must also consider the number of homes for sale.
RICS tracks the average stock levels (number of homes for sale) per estate agency branch. As we can see in the graph below the supply of homes for sale is close to its pandemic all-time low. So although demand is falling so is the number of homes for sale. Currently, demand from home buyers is still higher than the supply of homes from home sellers and as a result house prices are continuing to rise.
What next for the UK housing market?
We are not ready to join the doomsayers just yet. Whilst we appreciate that the housing market faces headwinds, these winds are not yet strong enough to blow the housing market into a ditch.
Those households with the finances in place to buy homes remain in a strong position. Their savings remain bolstered by two years of lockdown and their levels of discretionary spending are high and can therefore be reigned in or reallocated from holidays to housing. For more details on homebuyer's cost of living cushion, you can read our report What does the cost of living crisis mean for house prices?
We suspect that housing market activity will take a step back over the summer whilst households take a well-earned holiday and wait for the political dust to settle. Come September when a new upbeat and optimistic prime minister will be revealed we expect the housing market to return to a more normal pattern.